Question
GNC Holdings Inc. is a leading retailer of health and nutrition products, which are sold through both company-operated (3,500 outlets) and franchised retail (3,200 outlets)
GNC Holdings Inc. is a leading retailer of health and nutrition products, which are sold through both company-operated (3,500 outlets) and franchised retail (3,200 outlets) stores. In addition, GNC manufactures many of the products that it sells through its company-operated and franchised channels. As such, GNC's operating segments are Retail, Franchise and Manufacturing. The Retail segment is made up of company-operated stores, and the Franchise segment is made up of franchised stores. Recent financial information from these segments is as follows (in millions):
Retail | Franchise | Manufacturing | |||||||
---|---|---|---|---|---|---|---|---|---|
Sales | $1,939 | $433 | $486 | ||||||
Income from operations | 349 | 157 | 90 | ||||||
Invested assets | 1,573 | 512 | 407 |
Analyze the profit margin for each segment
Profit Margin = Income from Operations/Sales Retail: $349/$1,939 = 18.0% Franchise: $157/$433 = 36.3% Manufacturing: $90/$486 = 18.5%
Analyze the investment turnover for each segment
Investment Turnover = Sales/Invested Assets Retail: $1,939/$1,573 = 1.2 Franchise: $433/$512 = 0.8 Manufacturing: $486/$407 = 1.2
Analyze the Return on Investment
Return on Investment (ROI) = Profit Margin Investment Turnover Retail: 18.0% 1.2 = 21.6% Franchise: 36.3% 0.8 = 29.0% Manufacturing: 18.5% 1.2 = 22.2%
Form your discussion by answering the following:
- Differentiate between a profit center and an investment center.
- Why might the profit margin of the Franchise segment be larger than the other two segments?
- What is the source of revenues for the Manufacturing segment?
- With all of the above in mind, how would you enhance retail sales, which demonstrate the lowest profit margin and return on investment?
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